ThyssenKrupp Reshuffles Board After Losses, Corruption Case

ThyssenKrupp AG (TKA), Germany’s largest
steelmaker, ousted three top executives in an effort to repair a
boardroom tainted by corruption allegations and an ill-fated
expansion in the Americas.

Executive board members Olaf Berlien, 50, Edwin Eichler,
54, and Juergen Claassen, 54, will be relieved of their duties
at the end of the year, the Essen-based company said in a
statement late yesterday.

ThyssenKrupp, which is cutting the number of business units
to five from eight and building up its non-steel base, is
expected to post a second straight annual loss next week. Chief
Executive Officer Heinrich Hiesinger, who previously headed
Siemens AG (SIE)’s industrial unit, was brought in last year to revive
the fortunes of the company that was formed in the 1999 merger
between Thyssen and Krupp.

“Hiesinger has nobody to blame anymore, he has to
deliver,” said Hans-Peter Wodniok, an analyst at Fairesearch
GmbH & Co. KG in Kronberg, Germany. “The act of liberation
doesn’t come until Steel Americas is sold.”

ThyssenKrupp rose 2.3 percent in Frankfurt trading today to
16.43 euros. Today’s gain pared the stock’s loss for the year to
date to 11 percent.

Too Optimistic

An audit into the company’s unprofitable plants in the U.S.
and Brazil highlighted decisions made on “assumptions and key
data which were either clearly too optimistic or later proved to
be incorrect,” ThyssenKrupp said in the statement. The company
said it’s also been confronted with a series of corruption and
cartel cases that raise questions over the current leadership
culture.

Berlien and Eichler were on the board when the investment
decision was made for the failed move into the U.S. and Brazil.

Claassen, who joined the board last year, is being
investigated over a possible breach of trust, Wilhelm
Kassenboehmer, a spokesman for prosecutors in Essen, said last
week. Six employees at ThyssenKrupp’s GfT Bautechnik, for which
Eichler is responsible, were fired on suspicion of a breach of
trust. ThyssenKrupp was among companies fined by Germany’s
Cartel Office for antitrust violations in the country’s railway-
steel market this year.

Lowest Return

ThyssenKrupp, whose stainless-steel panels were used in the
construction of the Chrysler Building in 1929 and the Empire
State Building in 1931, has the lowest return on equity among
its European peers, weighed down by losses at its Steel Americas
unit.

ThyssenKrupp announced in May that a sale of its $13
billion steel plants in the U.S. and Brazil was among
“strategic options” as losses mounted up amid sluggish demand
and weak prices. The U.S. plant opened in 2010, importing steel
slabs made at the Brazil facility and processing them into high-
grade sheets.

Hiesinger said in August he wanted to sell the Americas
unit for its book value of about 7 billion euros ($9 billion).
The company was already divesting assets contributing about a
quarter of annual revenue before that decision, including a
stainless-steel business, as it builds up the non-steel base
that ranges from elevators to automotive parts and marine
services.

Zero Experience

The example of Steel Americas is a “textbook case of how
not to do it,” said Wodniok. ThyssenKrupp “had been a mere
German steelmaker by then with some processing capacity in
foreign European countries, zero experience in South America and
little trading experience in North America.”

Cia. Siderurgica Nacional SA (SID), Brazil’s third-largest
steelmaker by output, offered about $3 billion to buy the two
plants in the Americas, according to two people familiar with
the matter last week.

CSN, as the Sao Paulo-based company is known, is among
bidders that will participate in the final round of
negotiations, said one of the people, who asked not to be
identified because the discussion is private.

ThyssenKrupp’s debt stands at 6 billion euros, largely due
to the failed U.S. expansion. With a loss expected on the sale
of the plants, the company will need to find another way to
raise cash to expand into other markets.

Expected Loss

ThyssenKrupp will probably report a net loss of 846 million
euros for the 2011-2012 fiscal year on Dec. 11, based on the
median estimate of 18 analysts in a Bloomberg survey. That
compares with a loss of 1.3 billion euros the previous year when
it wrote down the value of its Steel Americas unit.

“Sentiment for the shares is negative, also with regard to
the results for the 2011-2012 fiscal year,” said Marc Gabriel,
an analyst at Bankhaus Lampe KG in Dusseldorf. “It remains to
be seen whether Hiesinger can refloat this ship.”

The losses have spurred calls among analysts for a capital
increase. A possible obstacle is the Krupp Foundation, whose
25.33 percent stake gives it a blocking minority in
ThyssenKrupp.

The foundation is headed by Berthold Beitz, a 99 year-old
veteran German industrialist who has been hailed in Israel for
saving Jews from the death camps during World War II. Created in
honor of the former head of the Krupp company, the foundation
manages the family fortune and sponsors philanthropic projects.

Ruled Out

The foundation “hinders ThyssenKrupp from raising
capital,” said Ingo Schmidt, an analyst at Hamburger Sparkasse
AG in Hamburg. The company will be “obliged to sell more
assets, that means silverware” in the event that an increase is
ruled out, he said.

ThyssenKrupp paid a dividend of 45 cents a share for the
fiscal year through September 2011 even after posting the loss.

“Berthold Beitz still is the dominant man at
ThyssenKrupp,” said Schmidt. “Therefore the group will
continue to pay a dividend even in the case of a loss.”

An official at the foundation declined to comment.

“The company is solidly financed,” Kilian Roetzer, a
spokesman for ThyssenKrupp, said today. “A capital increase
currently is not an issue.”